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Tom Rodgers
Tom Rodgers Head of Research
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ETC Group Crypto Minutes Week #24

Crypto Winter is here as markets dip below $1 trillion, altcoins and DeFi crash as lender Celsius halts withdrawals, billions in overextended leverage trades are wiped out, and fearful forced sellers flood the market with cheap Bitcoin.

Crypto Winter is here: how to survive a bear market

Usually, we cover the top three biggest stories in the space in our fortnightly foray into the fascinating (and sometimes maddening) world of crypto and blockchain. This time around, there's only one real story. Crypto Winter is here.

However, there are a lot of moving parts to this market and indeed this story, so don't expect just a cursory couple of paragraphs on the state of the cryptoasset sector.

A 'Crypto Winter', for the uninitiated, is a period characterised by a precipitous plunge in spot market prices, along with souring sentiment in the most speculative and frothy parts of the market. The last Crypto Winter occurred between late 2017 and late 2018, when the price of Bitcoin dropped a total of 84%. As the cycle plays out, both short-term and long-term holders feel significant pain, pulling liquidity and capital away from markets. Trading volumes fall, with many months of sideways or bearish movement.

More bullish conditions of Crypto Spring and Summer naturally follow. As such, these spells are considered necessary for the evolution of the space as they cleanse it of projects that hold no real utility or innovation. Ethereum co-founder Vitalik Buterin has said markets should “ welcome ” each Winter for these reasons.

So. Markets have fallen under $1 trillion total market cap for the first time since April 2021.

Cryptoasset prices are particularly vulnerable to shifts in sentiment. As a nascent asset class, newly clued-up investors are entering the space all the time. Many of these newbies buy their first Bitcoin or Ethereum on euphoric uptrends and panic sell at a loss when conditions worsen.

Anyone hoping that Bitcoin's rangebound trading around in a tight $28k to $31.5k spread would yield an upside shift has been sorely disappointed. Readers likely already know about the other red flags and recession/stagflation warning signs on the horizons for investors more broadly.

  • War in Ukraine.
  • Global supply chains under intense pressure.
  • Another US inflation print at 40-year highs (8.6%!).
  • The European Central Bank signals a 25 basis point rate hike, the first in a decade.
  • US drivers paying a record $5 per gallon of gasoline.
  • A cost of living crisis in the West.
  • Extreme levels of mortgage debt vulnerable to interest rate rises.
  • A severe banking collateral and liquidity crisis brewing.
  • Surprise negative GDP growth in the UK.
  • The Bank of England saying its largest lenders are no longer 'too big to fail'

Last but not least, the 2-year/10-year yield curve on US Treasuries has inverted for the second time this year. This is a leading indicator of recession and has preceded every major American downturn since the 1970s. In normal times, higher yields should be offered on the 10-year as opposed to the 2-year to account for the opportunity cost and risk premium for investors to hold longer-dated bonds.

Barclays analysts have now said what many other financial institutions have been thinking: the Fed will need to hike rates by 75 basis points (bps) rather than the 50bps that markets have priced in.

Central banks are out of monetary firepower, having religiously flooded markets with cheap cash in the insane ‘infinite QE' experiment . Stocks and bonds have been demolished, the S&P 500 is officially in a bear market and no-one has a good word to say about any investable asset class. A perfect storm of rocketing inflation, record energy prices, major economies shrinking, and a world system both saddled by debt and watching liquidity vanish has pushed world markets to a brittle cliff edge.

Crypto stocks, too, have been crushed, with many down 75% from the start of the year. Major players have been forced to either freeze hiring or in the case of Coinbase, rescind job offers to Wall Street banking and software development staff keen to hop the fence and join the financial revolution. In recent days both Coinbase and lender BlockFi have shed around a fifth of their workforce as conditions worsen and token prices crash.

Crypto markets are in a state of panic.

On 14 June, the Bitcoin Fear and Greed (F/G) Index hit an equal low record of 8 out of 100. This multi-factor indicator measures sentiment in crypto markets. It dropped below 20 on 8 May 2022, signalling extreme fear, and has stayed there ever since. The only comparable relentlessly bearish period of sentiment on record is March to April 2020.


Normally, periods of low market mood last only a couple of days at a time, followed by relief rallies or strengthened periods of accumulation. In periods of peak euphoria, these figures are in the 80s and 90s. In the November 2020 to early January 2021 bull run, when Bitcoin soared from $15k to $35k, the F/G Index remained above 90/100 for 66 days straight.

We wrote in early May how monthly average RSI - a momentum indicator - was at its lowest point in years, marking Bitcoin as clearly oversold. Those figures have not improved as we head towards the end of Q2 2022.

Diversification and position sizing will be the way out. Sometimes the only difference between medicine and poison is the dosage. Dollar-cost (or pound-cost, or euro-cost) averaging into positions on weakness is the clearest way to survive a bear market. Below, we'll also detail why Bitcoin is objectively cheap right now.

Celsuis stops withdrawals as $1.2bn leverage wiped out

Sentiment was already struggling in the face of a 50%+ drawdown from November's speculative run up to a Bitcoin $68.7k all time high. Markets were bruised but looking resilient after the Terra-induced collapse of mid-May.

Then the Celsius news hit. One of the world's largest crypto lenders made the shock announcement on 13 June it was halting all withdrawals, swaps and transfers between accounts, citing “extreme market conditions”.

The rumour mill started whirring almost immediately. On Twitter, independent analyst Brad Mills suggested that Celsius was now struggling under the weight of its own debts.

Within a matter of hours, the market leading lender Nexo had swooped in with a buy offer for Celsius' collateralised loan portfolio. For anyone who noticed, this was an object lesson in how to make distressed assets work to your advantage. In the coming Crypto Winter there will likely be many such consolidations and buyouts, as heavily leveraged forced sellers are taken out by better-capitalised rivals. I can certainly see the same happening in the fragmented Bitcoin mining space, with so many publicly-listed companies having taking on large amounts of debt to fund ASIC machine purchases, land buys, staff hiring sprees or other growth.

It's going to get very ugly for leveraged traders in the next few weeks. There will be margin calls aplenty all round, and those are phone calls or emails you really can't ignore.

$1.2bn in leveraged trades, both long and short, have been liquidated on unregulated exchanges in the past 48 hours alone. This exceeds the sharp drops seen around the time of the Terra collapse.

The chart below tracks liquidations in Bitcoin (BTC), Ethereum (ETH), Tether (USDT), Solana (SOL), Ripple (XRP), Cardano (ADA) and Tron (TRX) on the Binance, Huobi, OKEx, FTX, BitMex and Bybit exchanges.


Incidentally, ETC Group research on the 2022 State of Crypto Derivatives details exactly why regulated Bitcoin futures exchanges like Eurex in Europe and CME in the US are a much better value proposition than Binance or other venues that force auto-liquidations when markets move against trader positions.

And with 11 May and 13 June firmly in the record books, we have now witnessed two $1bn+ leveraged liquidation events inside 35 days.

The vast majority of lending and borrowing in DeFi markets is done with altcoins other than Bitcoin.

And while readers may have heard that there are more than 10,000 cryptocurrencies on the market, in reality, most outside the top 200 are thinly-traded, staffed by part-time developers and have followings akin to small venture stocks. There is a large amount of concentration at the top of the tree.


The top five DeFi blockchains, where crypto lending and borrowing takes place, represent 84% of the market. The leader, Ethereum, accounts for 64%, with BNB Chain (formerly, Binance Smart Chain (BSC)) in distant second with 8% market share.

TVL, or Total Value Locked, measures how much crypto is locked in smart contracts that allow lending or borrowing in DeFi. TVL sank to less than $80bn as of 14 June from a high of $217bn in December last year.

Some early predictions for the rest of 2022 are a continuation of what we said in our last market update. It will be a Darwinian process as to which blockchains survive. Market leaders like Bitcoin and Ethereum have massive network effects that set them way out in front. Poorly-maintained or underdeveloped meme coins - we're looking at you, Dogecoin (DOGE) and Shiba Inu (SHIB) - whose position in the top 20 cryptos by market cap is still a mystery, won't survive an extended bear market.

Fear Mode reigns but Bitcoin objectively cheap

Historically, the largest gains have been made from scaling in buys when other market participants become forced sellers. This might not be what current holders witnessing large paper losses want to hear right now. And finding the right time to pile in and feast on weakness is tricky.

One key on-chain metric we follow to determine a fair value for Bitcoin is called Net Unrealised Profit and Loss (NUPL). NUPL estimates whether Bitcoin holders today are in profit or holding at a loss, and as such is a really useful signal for whether markets are cooling or overheating.

The below chart splits the market into five distinct zones, depending on the number of Bitcoin holders with unrealised profits or losses. Higher percentages where prices are trending up suggest highly bullish or euphoric markets. At these times it has been historically more valuable to take profits. Lower percentages where prices are trending down suggest highly bearish markets where it has been historically more valuable to accumulate crypto.

Net Unrealised Profit/Loss zones

  • NUPL 75-100% : Euphoria (trending up) or Greed (trending down)
  • NUPL 50-75% : Belief (trending up) or Denial (trending down)
  • NUPL 25-50% : Optimism (trending up) or Anxiety (trending down)
  • NUPL 0-25% : Hope (trending up) or Fear (trending down)
  • NUPL below 0% : Capitulation

Bitcoin markets today are currently in the Fear zone. Capitulation, where the highest-conviction holders also sell, comes when NUPL drops below 0%. We are not there yet.


The data is derived from this equation : Bitcoin market cap, minus Bitcoin realised cap, divided by Bitcoin market cap. Adamant Capital created the indicator in 2019.

Bitcoin market cap you already know and love: that's the current spot price of Bitcoin ($22.8k at time of writing) multiplied by the number of BTC in circulation (just over 19 million ).

Realised cap may be new to you. This takes the average price of each bitcoin when it was last moved from one wallet to another, then multiplied by the number of BTC in circulation. That's the brilliant thing about blockchains: they are so much more open than other forms of currency. We can actually see - for free - when each bitcoin was last used! Try doing that with GBP or USD.

The most obvious recent capitulation point to compare with was ‘Black Thursday': 12 March 2020, when the price of Bitcoin almost halved overnight . The same area of the market - poorly-understood high-yield DeFi products - was to blame then, as retail investors got boxed into collateralised debt obligations which triggered cascades of auto-liquidation as prices moved against them.

The same appears to be happening again. Sellers are selling now not because they want to, but because they have to.

Whether that's overextended retail looking to cash out quickly (and because crypto markets are an ATM for quick cash, instead of the T+2 it takes for stocks and shares), or corporates and traders trying to meet margin calls, few people selling Bitcoin or Ethereum today are doing so from a position of profit. If they are, why now? Why not four months ago, when we hit peak euphoria?

If Bitcoin breaks below $20k the next major support level for the world's first cryptocurrency lies between $15K and $18k.

Those with capital to spare could feast on opportunity here and stack crypto at firesale prices, while those who are overleveraged will likely continue to run for cover.


As of 14 June 2022, markets are trending downwards from fear towards capitulation. Dampening sentiment pervading the crypto market has seen Bitcoin breach a key macro low of $28,000 and fall to its lowest price since December 2020. Bitcoin is now attempting to consolidate within the $21,000-$23,000 range after shedding 27% of its value since the opening of June.

Ethereum too has dropped to a major level of support and is currently hovering around the $1,200 mark. Since 31 May Ethereum has declined by 37% despite making advances in its race to switch to Proof of Stake after its successful Ropsten testnet merge.

Ostensible “Ethereum killers” Solana (SOL), Avalanche (AVAX), and Cosmos (ATOM) have not escaped either. Each of these Layer-1 blockchains has lost more than 34% of its value in the last 14 days with crypto investors scrambling to find refuge.

With a 21% decline across the last 14 days Cardano (ADA) takes the prize of least bad performer. It currently sits at $0.49 – still a far cry from the all-time-high of $3.09 it hit in September 2021.


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